Brexit in the Year 2020 - Business As Usual until 31 December

It's time: Brexit was implemented on Friday, 31 January 2020 at midnight. The United Kingdom has no longer been a Member of the European Union (EU) since that time. However, (almost) everything will initially stay as it was, in any event, until 31 December 2020. The transition period is supposed to be used to regulate the future relations between the EU and the United Kingdom. The negotiation phase is now beginning, but the result is uncertain.  

The exit has occurred

The United Kingdom showed that it was serious nine months after the Brexit referendum. The British Prime Minister at that time Theresa May signed the official declaration about the exit of the United Kingdom for the EU on 29 March 2017. Pursuant to Art. 50 TEU, a two year negotiation phase began which appeared to end on 25 November 2018 when the result of the negotiations was accepted by the European Council of the heads of state and government in the EU. Various votes in the British parliament, a change in government and additional rounds of negotiation resulted later in the United Kingdom and the EU agreeing on a "New Deal" in October 2019. With the wind in his back from the confirmation by the British electorate in the elections to parliament that had been advanced to the beginning of December 2019 ("Get Brexit done"), Prime Minister Boris Johnson was able to get the British parliament to pass the Brexit Act in January 2020. The Withdrawa Agreement was subsequently also ratified by the European parliament. The exit process under Art. 50 TEU is, thus finally completed. In order to again become a Member of the EU, the United Kingdom would have to go through the accession process which the EU Treaties have established for third countries.  

The rules until 31 December 2020

Although the United Kingdom left the EU as of 31 January 2020, the direct effects for British cross-border trade with the EU are initially small. In order to be able to regulate the future relations between the United Kingdom and the EU, the Withdrawal Agreement provides for a transition period until 31 December 2020 which could be extended once for up to two years. The law of the European Union continues to apply in the United Kingdom until the transition period ends and must be applied in accordance with the same standards as previously. The United Kingdom will continue to be treated during this time as part of the EU and the Single Market, but will no longer be involved in the various bodies and administrative structures of the EU. However, trade with third countries outside the EU will be tricky.  

Cross-border trade between the United Kingdom and the EU

Goods can accordingly be traded freely between the United Kingdom and the EU also after 31 January 2020. This applies both with regard to customs as well as foreign trade law. All standards of the European Single Market continue to apply, and no customs controls at border crossings will be carried out. 

Preferential trade agreements of the EU do not automatically continue to apply

The Withdrawal Agreement provides that the Free Trade Agreements of the EU and the provisions contained in them on origin of goods and preferences will continue to apply for the United Kingdom. Thus, the United Kingdom is required to give preferential treatment to foreign contract partners in the EU. The EU will inform the parties to the treaties that the United Kingdom will continue to be treated as a Member State of the EU for purposes of Free Trade Agreements until the end of the transition period. It remains to be seen whether the parties to the treaties will accept this construct and recognize goods with (partial) origin in the United Kingdom as goods originating in the EU; however, they are, in any event, not required to do so under the bilateral Withdrawal Agreement between the EU and the United Kingdom.

There is only final certainty with regard to those countries with which the United Kingdom has concluded its own Free Trade Agreements. An overview can be found on the website of British government. Various Free Trade Agreements, including with Canada, Turkey and Japan, are still being negotiated. 

Companies which use British components in their products or deliver products originating in the EU through the United Kingdom to third countries should carefully examine whether Brexit will have any effects on the origin of their products and the use of preference for customs tariffs and which effects this might be. 

Again uncertainty after the end of the transition period

The so-called "No-Deal" Brexit, however, has not been finally avoided as a result of the Withdrawal Agreement. The United Kingdom and the EU have the ambitious goal of regulating the future relations in a close economic and security partnership by the end of 2020. A comprehensive Free Trade Agreement is supposed to be concluded in the economic field. Critical voices expressed doubts that this schedule can be met. If not, an extension of the transition period for up to two years will have to be mutually agreed already by 1 July 2020, a solution which Prime Minister Johnson has rejected so far.

EU Chief Negotiator Michel Barnier and Prime Minister Johnson again clearly stated the positions of both sides at the start of the negotiation phase. The use of free movement of goods by the United Kingdom while simultaneously limiting freedom of movement of capital, persons and services and a strong deviation from norms and standards in the EU, for example, in the social and environmental fields, is probably not capable of implementation. The developments in the negotiation phase can be followed on the website of our British partner firm Mills & Reeve. If no treaty is concluded by the end of the transition period, a "No-Deal" Brexit again threatens.

However, the Withdrawal Agreement also contains provisions for the time after the end of the transition period with regard to specific situations. For example, goods, except for living animals and animal products, which have been legally introduced into commerce in the EU or the United Kingdom prior to the expiration of the transition period can continue to remain in free commerce in and between these two markets until they have reached the end-user. Furthermore, no additional requirements for the products are needed. Movements of goods which begin prior to the expiration of the transition period will be treated in accordance with the provisions in the European Union applicable at the time the movement begins even after the end of the transition period for purposes of customs, value added tax and excise. 

Outlook

There continues to be a possibility for unregulated relationships between the EU and the United Kingdom after the end of the transition period. However, even if a Free Trade Agreement is concluded, it is clear, in any event, that customs formalities will have to be complied with in trading goods with the United Kingdom which currently do not apply. Companies should prepare for this.

Our attorneys can analyze your issues in light of the various exit scenarios and help you set the right course in advance for your business and business relationships in and with the United Kingdom.